Author Topic: % of 401k in Foreign Markets  (Read 1998 times)

LearningMustachian72

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% of 401k in Foreign Markets
« on: December 04, 2018, 09:13:54 AM »
Hey,

I am wondering if anyone has a good philosophy towards % of 401k funds in foreign markets?

I am 30, have had 100% in domestic index funds but recently switched my future contributions to 90% domestic, 5% bonds and 5% foreign markets.  I should note that my 'domestic' index fund has 2% in europe and 1% in UK.

Any suggestions on this topic or other 401k balancing tips would be appreciated.

Scandium

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Re: % of 401k in Foreign Markets
« Reply #1 on: December 04, 2018, 09:34:52 AM »
I follow cap weight; about 40-50% foreign markets across all accounts. Whether it's in 401k or somewhere else depends on where you have the best fund options. For tax reasons slight benefit to keep foreign funds in taxable, but I can't be bothered with that, especially since my 401k balance is much higher than my taxable.

dude

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Re: % of 401k in Foreign Markets
« Reply #2 on: December 04, 2018, 09:43:21 AM »
Hey,

I am wondering if anyone has a good philosophy towards % of 401k funds in foreign markets?

I am 30, have had 100% in domestic index funds but recently switched my future contributions to 90% domestic, 5% bonds and 5% foreign markets.  I should note that my 'domestic' index fund has 2% in europe and 1% in UK.

Any suggestions on this topic or other 401k balancing tips would be appreciated.

International index funds have lagged domestic index funds badly for 25 years or more. That being said, I've become convinced that future growth lies in international markets where valuations are much lower than in the U.S. Accordingly, about a year ago, I ramped up my international holdings from @7% to 12%. This is a long-term play for me -- I don't expect to see results for another 10-20 years.

PDXTabs

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Re: % of 401k in Foreign Markets
« Reply #3 on: December 04, 2018, 10:23:19 AM »
I follow cap weight; about 40-50% foreign markets across all accounts.

Me to, the easiest way is to just invest in VT/VTWSX. You can easily see from their prospectus that right now the split is about 55% US 45% ROW. That's the current market capitalization weighting of publicly traded companies in the world.

teltic

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Re: % of 401k in Foreign Markets
« Reply #4 on: December 04, 2018, 03:28:19 PM »
I've pumped mine from 10% to 25% overall.

Simply put, market valuations for the S&P 500 is high (looking at P/E ratios).  I'll admit I've been 100% US since day 1 of investing (2011... God I started investing at a good time), I cannot imagine another 10 years of no growth in foreign markets.

25% may not be enough... But I feel good about it.

LearningMustachian72

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Re: % of 401k in Foreign Markets
« Reply #5 on: December 04, 2018, 03:59:31 PM »
Do you diversify between similar options within your companies 401k plans?

As an example, I have 90% in a large US equity index fund, 5% in bonds and 5% in International.

There are several options in the 'Large US Equity' category...the main differences I see are fees and diversification among industries.

I also have the following option categories:

Growth
Balanced
Mid US Equity
Small US Equity
International
Specialty Sector

I find the options a bit overwhelming personally but with contributing the max, I want to ensure I am allocating properly. 

Do you have any tips on how I should diversify among these categories or go about allocating my contributions in general?

tralfamadorian

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Re: % of 401k in Foreign Markets
« Reply #6 on: December 04, 2018, 04:33:07 PM »
50% real estate (outside of retirement accounts)
25% foreign
25% domestic

Telecaster

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Re: % of 401k in Foreign Markets
« Reply #7 on: December 04, 2018, 05:05:21 PM »
Do you diversify between similar options within your companies 401k plans?

As an example, I have 90% in a large US equity index fund, 5% in bonds and 5% in International.

There are several options in the 'Large US Equity' category...the main differences I see are fees and diversification among industries.

I also have the following option categories:

Growth
Balanced
Mid US Equity
Small US Equity
International
Specialty Sector

I find the options a bit overwhelming personally but with contributing the max, I want to ensure I am allocating properly. 

Do you have any tips on how I should diversify among these categories or go about allocating my contributions in general?

You can go down this rat hole pretty far.  Personally, I believe simplicity and straightforwardness win the day when it comes to investing.  Don't even bother with sectors, you'll always be in the wrong one.   You mentioned there is a large US equity index fund.   That's where the bulk of your money should go.  If you do just that, you will damn near hit a home run investing-wise. 

Now, index funds are almost always cap-weighted, so in reality you are placing most of your investing dollars in a fairly small number of companies (the companies at the bottom of the index make up such small percentage they almost don't count).   Plus, mid-cap and small-cap companies tend to grow faster (but with more volatility), so you'll probably want to  have some money in a mid-cap or extended market fund.   Your 5% in foreign funds isn't a bad idea either. 

So maybe something like 60% large cap index, 30% mid-cap index, 5% foreign, and 5% bonds.  Something along those lines.   


yellow

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Re: % of 401k in Foreign Markets
« Reply #8 on: December 04, 2018, 06:24:01 PM »
I have followed the following
50% large cap
20% foreign
15%mid cap
15% small cap

Reasoning i did foreign at 20% is because i figure most of the large and midcap probably have some sort of presence overseas as well.

bacchi

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Re: % of 401k in Foreign Markets
« Reply #9 on: December 04, 2018, 06:48:18 PM »
International index funds have lagged domestic index funds badly for 25 years or more. That being said, I've become convinced that future growth lies in international markets where valuations are much lower than in the U.S. Accordingly, about a year ago, I ramped up my international holdings from @7% to 12%. This is a long-term play for me -- I don't expect to see results for another 10-20 years.

Emerging markets has had some great years.

https://www.callan.com/wp-content/uploads/2018/01/Callan-PeriodicTbl_KeyInd_2018.pdf


LearningMustachian72

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Re: % of 401k in Foreign Markets
« Reply #10 on: December 05, 2018, 08:22:58 AM »
Thank you for all of the responses...very helpful in thinking through this! 

I am 30, maxing my contributions and have settled on the following

My last question is...should I stick to one fund in each of the categories (e.g. large cap, mid cap, etc.) or is it fine to diversify as I have?


Large Cap 55%
45% in lowest fee index (.11% fee)
5% in large cap growth (0.48% fee)
5% in large cap value (0.42% fee)

Mid Cap 10%
5% in mid cap opportunity(0.67% fee)
5% in mid cap growth (0.46% fee)

Small Cap 15%
10% in small cap value (0.75% fee)
5% in small cap growth (0.90% fee)

International 15%
15% (0.6% fee)

Bonds 5%
5% (0.3% fee)


RWD

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Re: % of 401k in Foreign Markets
« Reply #11 on: December 05, 2018, 08:48:30 AM »
Do you have investments outside of your 401k? If so you should consider your portfolio as a whole and not just what is inside the 401k.

My 401k is 100% international stocks currently but that is balanced with the contents of my wife's retirement plan, our Roth IRAs, a rollover IRA, and brokerage account.

LearningMustachian72

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Re: % of 401k in Foreign Markets
« Reply #12 on: December 05, 2018, 08:54:36 AM »
I currently do not have an investment account outside of my 401k :(

Telecaster

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Re: % of 401k in Foreign Markets
« Reply #13 on: December 05, 2018, 04:16:04 PM »
Thank you for all of the responses...very helpful in thinking through this! 

I am 30, maxing my contributions and have settled on the following

My last question is...should I stick to one fund in each of the categories (e.g. large cap, mid cap, etc.) or is it fine to diversify as I have?


Large Cap 55%
45% in lowest fee index (.11% fee)
5% in large cap growth (0.48% fee)
5% in large cap value (0.42% fee)

Mid Cap 10%
5% in mid cap opportunity(0.67% fee)
5% in mid cap growth (0.46% fee)

Small Cap 15%
10% in small cap value (0.75% fee)
5% in small cap growth (0.90% fee)

International 15%
15% (0.6% fee)

Bonds 5%
5% (0.3% fee)

You are getting killed with fees.  A difference of say, 0.5% doesn't sound like a lot, but it will end up costing you an enormous amount of money over your investing career.    For the large caps, you definitely want to be only in the index fund.  Same other cap sizes too, if your 401(k) offers index funds in those categories.   

COEE

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Re: % of 401k in Foreign Markets
« Reply #14 on: December 05, 2018, 04:32:32 PM »
I agree with keeping an eye on your total portfolio - it doesn't have to be in your 401k.  Including cash and property.

Most things I read online suggest International being 0-20% of your investment portfolio.

Have you written an IPS?  https://www.bogleheads.org/wiki/Investment_policy_statement

tralfamadorian

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Re: % of 401k in Foreign Markets
« Reply #15 on: December 05, 2018, 04:41:37 PM »
Thank you for all of the responses...very helpful in thinking through this! 

I am 30, maxing my contributions and have settled on the following

My last question is...should I stick to one fund in each of the categories (e.g. large cap, mid cap, etc.) or is it fine to diversify as I have?


Large Cap 55%
45% in lowest fee index (.11% fee)
5% in large cap growth (0.48% fee)
5% in large cap value (0.42% fee)

Mid Cap 10%
5% in mid cap opportunity(0.67% fee)
5% in mid cap growth (0.46% fee)

Small Cap 15%
10% in small cap value (0.75% fee)
5% in small cap growth (0.90% fee)

International 15%
15% (0.6% fee)

Bonds 5%
5% (0.3% fee)

This is way too complicated.

https://www.bogleheads.org/wiki/Lazy_portfolios

Steeze

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Re: % of 401k in Foreign Markets
« Reply #16 on: December 05, 2018, 05:02:39 PM »
If I were in that situation I would go 100% in large cap index and then open an IRA at Vangaurd and get my diversification in the IRA with lower cost funds. Keep it simple with 1 fund in the 401k. Then 1 bond fund, 1 international fund in the IRA. ... if you can max both the IRA and 401k, start buying your international in a taxable instead.

Scandium

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Re: % of 401k in Foreign Markets
« Reply #17 on: December 06, 2018, 09:54:39 AM »
Thank you for all of the responses...very helpful in thinking through this! 

I am 30, maxing my contributions and have settled on the following

My last question is...should I stick to one fund in each of the categories (e.g. large cap, mid cap, etc.) or is it fine to diversify as I have?


Large Cap 55%
45% in lowest fee index (.11% fee)
5% in large cap growth (0.48% fee)
5% in large cap value (0.42% fee)

Mid Cap 10%
5% in mid cap opportunity(0.67% fee)
5% in mid cap growth (0.46% fee)

Small Cap 15%
10% in small cap value (0.75% fee)
5% in small cap growth (0.90% fee)

International 15%
15% (0.6% fee)

Bonds 5%
5% (0.3% fee)

This is way too complicated.

https://www.bogleheads.org/wiki/Lazy_portfolios

Yup, all those 5% in bunch of different funds is a waste. I'd probably just do large cap index, and some in international. Simple. For example my current 401k is crap so I ended up with just 100% in an S&P fund (at 88bps!) and international in a different account.

omachi

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Re: % of 401k in Foreign Markets
« Reply #18 on: December 06, 2018, 10:00:31 AM »
Do you have investments outside of your 401k? If so you should consider your portfolio as a whole and not just what is inside the 401k.

My 401k is 100% international stocks currently but that is balanced with the contents of my wife's retirement plan, our Roth IRAs, a rollover IRA, and brokerage account.
What @RWD said, but if you have non-tax advantaged accounts, put the international funds there. You can deduct taxes paid to a foreign government on US taxes when they're held in taxable accounts. Inside a 401k and you're still paying foreign taxes, but you don't get to deduct it anywhere.

This is a pretty late optimization, though, and unlikely to make or break you. Still, if you have the choice, putting your international allocation outside the 401k will be to your benefit.

RWD

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Re: % of 401k in Foreign Markets
« Reply #19 on: December 06, 2018, 11:10:04 AM »
Do you have investments outside of your 401k? If so you should consider your portfolio as a whole and not just what is inside the 401k.

My 401k is 100% international stocks currently but that is balanced with the contents of my wife's retirement plan, our Roth IRAs, a rollover IRA, and brokerage account.
What @RWD said, but if you have non-tax advantaged accounts, put the international funds there. You can deduct taxes paid to a foreign government on US taxes when they're held in taxable accounts. Inside a 401k and you're still paying foreign taxes, but you don't get to deduct it anywhere.

This is a pretty late optimization, though, and unlikely to make or break you. Still, if you have the choice, putting your international allocation outside the 401k will be to your benefit.
I do have international funds in a taxable account but I'd rather not have so much that I need to deal with Form 1116.

FIRE@50

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Re: % of 401k in Foreign Markets
« Reply #20 on: December 06, 2018, 11:20:09 AM »
100% of my 401k is in an S&P500 index fund.

Perhaps you don't realize how international the S&P 500 is. Perhaps putting additional money in an international fund leaves you underweighted in the US market.

https://us.spindices.com/indexology/djia-and-sp-500/sp-500-global-sales
https://seekingalpha.com/article/4146992-global-s-and-p-500

MustacheAndaHalf

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Re: % of 401k in Foreign Markets
« Reply #21 on: December 07, 2018, 09:25:49 AM »
While I'm fine with 40-50% international for experienced investors, I don't think someone with 5% international should jump that far.  The downside is selling at the market bottom, which is worse than having a smaller allocation - and that's more likely if you are unsure of international.

Vanguard wrote a white paper on international diversification.  For someone keeping far from international markets, you might start with a 20% international allocation - it has the highest chance of improving your returns.
https://www.vanguard.com/pdf/ISGGEB.pdf

LearningMustachian72

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Re: % of 401k in Foreign Markets
« Reply #22 on: December 20, 2018, 03:30:26 PM »
Thanks for the input everyone.  I think I will stay 95% in Large Cap US Index and 5% in foreign until I open an account outside of my 401k and then will diversify there.

I appreciate the feedback!